REVENUE MEMORANDUM CIRCULAR NO. 50-2007 SECTION 3. Clarificatory Questions and Answers. Q1: How will the sale, barter or exchange of goods or properties into the Freeport Zone by suppliers/contractors from the Customs Territory be considered? A1: Such transactions transactions shall be considered as export sales in accordance with RA 7227, as amended by RA 9400, which provides that the Freeport Zones shall be operated and managed as a separate customs territory. Moreover, Executive Order (EO) No. 226 provides provid es that sales from the Customs Territory to export processing zones are considered as “export sales”. Q2: What will be the treatment of sale, barter, exchange or lease of g oods,properties and sale or exchange of services to a registered Freeport Zone enterprise by sellers/contractors from the Customs Territory? A2: If the seller is a VAT VAT taxpayer, such sale, barter or exchange exchange shall be subject to VAT VAT at zero (0%) percent. If the seller is a non -VAT taxpayer, the transaction shall be exempt from VAT. Q3: What What is meant by a “zero“zero -rated” sale and an “exempt” sale? A3:. A zero-rated sale of goods, goods, properties and/or services (by a VAT registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services, related to such zero-rated sale, shall be available as tax credit or refund in accordance with existing regulations. Under this type of sale, no VAT shall s hall be shifted or passed-on by VAT-registered sellers/suppliers from the Customs Territory on their sale, barter orexchange of goods, properties or services to the subject registered Freeport Zone enterprises. A VAT-exempt transaction, transaction, on the other hand, hand, refers to the sale of goods, properties or services or the the use or lease of properties that is not subject to VAT (output tax) under Section 109 of the Tax Code of 1997 , and the seller/supplier is not allowed any tax credit of VAT (input tax) on purchases related to such exempt transaction. Q4: What is the difference between an automatically zero-rated sale and an effectively zero-rated sale? A4: An automatically automatically zero-rated sale refers to a sale of goods, properties and services to a Freeport Zone-registered enterprise by a VAT-registered seller/supplier that is regarded as either an export sale or a foreign currency denominated sale under Section 106 of the Tax Code of 1997. An effectively zero-rated zero-rated sale, on the other hand, hand, refers to the local sale of goods, properties properties and services by a VAT-registered person to an entity that was granted granted indirect tax exemption under under special laws or international international agreements. Since the buyer is exempt from indirect tax, the seller cannot pass on the VAT and therefore, the exemption enjoyed by the buyer shall extend to the the seller, making the sale effectively effectively zero-rated. Q5: What is the coverage of VAT zero-rating? A5: The zero-rating will cover cover sale, barter, exchange or lease of all goods, properties and/or services services by a VAT-registered seller/contractor from the Customs Territory to a Freeport Zone-registered enterprise and shall include, among others, the following: a. The sale/supply of ordinary cars, vehicles, automobiles, specialized vehicles or other transportation equipment, provided that these are used exclusively within the subject special Freeport Zones; b. The lease of properties by VAT-registered lessors, provided that that such properties are located located within the subject Freeport Zones; c. The sale/supply of electricity elect ricity by the National Power Corporation(“NPC”) or by any other VAT-registered VAT -registered seller/supplier from the Customs Territory, to any registered Freeport Zone enterprise engaged in the distribution of power or electricity within the subject subject Freeport Zones; and d. The sale/supply of services, provided such services are rendered or performed within the Freeport Zone.
